US consumer prices rise sharply in December

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WASHINGTON, Jan.12 (Reuters) – Consumer prices in the United States rose sharply in December, with the annual rise in inflation being the largest in nearly four decades, which could reinforce expectations that the Reserve Federal government will start raising interest rates in March.

The consumer price index rose 0.5% last month after advancing 0.8% in November, the Labor Department said on Wednesday. In the 12 months ending in December, the CPI jumped 7.0%. This was the largest year-over-year increase since June 1982 and followed a 6.8% increase in November.

Economists polled by Reuters predicted the CPI would gain 0.4% and rise 7.0% year-on-year.

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The economy is experiencing high inflation as the COVID-19 pandemic disrupts supply chains. The high cost of living weighs on President Joe Biden’s approval rating.

Inflation is well above the Fed’s 2% target and is also supported by emerging wage pressures. The government announced last Friday that the unemployment rate fell to a 22-month low of 3.9% in December, suggesting the labor market is at or near maximum employment. Read more

Fed Chairman Jerome Powell said on Tuesday that the US central bank was prepared to do whatever is necessary to prevent high inflation from becoming “entrenched”, during testimony at his nomination hearing before the committee senatorial bank for a second four-year term as head of the Bank. Read more

“The list of reasons the Fed has started removing monetary policy accommodations is growing,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pa. “Inflation is expected to slow quickly to relieve some of the pressure on the Fed and that is unlikely to happen.”

Money markets are currently forecasting about an 85% chance of an interest rate hike by March and a total of at least three-quarters of a point by the end of the year. FEDWATCH

Economists believe the year-on-year CPI rate likely peaked in December or likely will by March. There are signs that supply bottlenecks are starting to ease, with an Institute for Supply Management survey last week showing manufacturers reporting improved supplier deliveries in December.

But the surge in COVID-19 cases, driven by the Omicron variant, could slow progress towards standardizing supply chains.

Excluding the volatile components of food and energy, the CPI rose 0.6% last month after increasing 0.5% in November. In the

Year over 12 months to December, the core CPI accelerated 5.5%. This was the largest year-over-year increase since February 1991 and followed a 4.9% gain in November.

Core inflation is driven by higher prices for services such as rentals, as well as scarce goods such as motor vehicles. The core year-on-year CPI rate peaked in February.

“The first quarter is expected to see inflation peak, with lower energy prices and lower food and auto inflation allowing for slower price increases for the remainder of the year,” said David Kelly, chief global strategist at JPMorgan Funds in New York.

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Reporting by Lucia Mutikani Editing by Chizu Nomiyama

Our standards: Thomson Reuters Trust Principles.

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